Steel stocks to see Rs 3,000 -4,000 per tonne margin expansion in Q3 over Q2: Rakesh Arora

“Even without the duty, it does not really make any sense for steel companies to push exports aggressively. But it allows a little bit to go away so that the accumulated inventory etc,” says Rakesh Arora, Founder, Go India Stocks.com

The government has removed export duty on certain still products. Industry has been asking the government and making a representation for a long time. Now that it is here, what is the upside can be, if any, for steel stocks?
First of all, it is a very positive move because with uncertainty, things have changed dramatically since duty was imposed in May. Steel prices globally have corrected quite sharply. Currently, the export price for steel is Rs 9,000 to 10,000 lower than domestic price. Even without the duty, it does not really make any sense for steel companies to push exports aggressively. But it allows a little bit to go away so that the accumulated inventory etc. can still be pushed out at a lower margin to maintain margins in the domestic market, where bulk of the material is sold. It is mildly positive but long term, it is more positive.

Given that a lot of these domestic steel makers like JSPL, Tata Steel, JSW Steel have posted a sharp drop in their profits or losses, this time around, it should come in as a booster shot. As coking coal prices have been very elevated, do you think the government would remove the duty since India is heavily dependent on imported coking coal for steel production?
Actually the government has reinstated the import duty on coking coal. The message is very clear, They are not really encouraging import of thermal coal or coking coal into the country. Steel margins will improve in Q3 because coking coal prices came off earlier in the quarter. Now they have inched back upwards but there will be Rs 3,000 to 4,000 per tonne margin expansion in Q3 over Q2. But stocks have moved up way beyond what will be the improvement in the margins.